In recent comments, Montri Mahaplerkpong, vice-chairman of the Federation of Thai Industries (FTI), expressed the anxiety felt by the majority of FTI executives over the potential impact of rising interest rates on the industrial sector. In a survey carried out by the organization, the ramifications of further rate hikes emerged as a top concern for most.
In a significant economic policy move, Thailand’s central bank, the Bank of Thailand Monetary Policy Committee, recently hiked the annual interest rate by 0.25% on August 2 – pushing it up from 2.00% to 2.25%. This was a record nine-year high, emphasized Montri. Higher interest rates invariably lead to an escalation in financial costs, further elucidating the root of the collective apprehension, he added.
Further compounding these worries is the expectation of another rate hike by the influential US Federal Reserve later this year. It seems probable that Thailand may have to follow suit to keep its own currency competitive, Montri stated. In simple terms, a hike in interest rates generally impacts the industrial sector in two core ways: it curtails purchasing power and stalls investment.
With interest rates on loans and household debts escalating, consumers naturally become more circumspect in their spending. Concurrently, businesses might find themselves compelled to increase their product prices and put new investments on hold, Montri explained.
On a proactive note, he urged the government to consider certain steps that could potentially soften the blow of rising interest rates. These steps could include schemes offering low-interest loans to buoy liquidity for small and medium-sized enterprises (SMEs); closely observing the disparity between deposit and loan interest rates; streamlining loan request regulations to offer entrepreneurs easier access to funding, and postponing further interest rate hikes.
Montri also called for measures to address the increasing burden of household debts that is dampening the Thai economy. Suggestions from him related to this included: reducing the cost of living; initiating employment drives; encouraging the elderly to contribute to the workforce; rewarding timely debt repayment with incentives, and initiating debt restructuring for those grappling with repayment issues.
The extensive FTI survey included the feedback of 216 CEOs from around the country, and it provided some telling statistics:
When asked about their anxiety levels concerning interest rate hikes, the majority responded:
- 60.2% indicated they were very worried
- 33.3% professed they were moderately worried
- A mere 6.5% claimed not to be worried
On the question of the impact of rising rates on the industrial sector, they responded:
- 64.8% highlighted a decline in consumer purchasing power caused by rising loans and household debts
- 62.0% pointed to difficulties in raising product prices and the negative impact on economic recovery
- 56.5% expressed concern over investment delays and the reduction in production capacity due to escalating financial costs
Surely, these findings will infuse further dialogue and discussions around Thailand’s economic planning and strategies.